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Business News/ Opinion / Columns/  An EU green-cover policy that looks like a trade shield

An EU green-cover policy that looks like a trade shield

Agricultural protectionism is not new for the EU. Be it through its market-intervention measures like export refunds and intervention buying, or more recently through stiff regulations for exporters, the EU has always protected its farmers

An EU green-cover policy that looks like a trade shieldPremium
An EU green-cover policy that looks like a trade shield

For decades, Ethiopian exports of roasted Arabica found their way into Europe’s coffee markets. Ethiopia’s coffee plantations were often built on cleared forests, specifically on the last remnants of its only biodiversity hotspot. This format of European trade with countries in Asia, Africa and South America continued unabated without eyebrows raised until about a year ago. In November 2021, the European Commission proposed legislation to check EU consumption and production of agricultural produce cultivated on deforested land. Pursuant to this, the EU Parliament and Council recently arrived at a political agreement, one being touted by the EU, a major trader of such agricultural commodities, as a major move to combat forest degradation and biodiversity loss. It was evidently timed for talks in Montreal on the subject. But there is more to this story than meets the eye.

Agricultural protectionism is not new for the EU. Be it through its market-intervention measures like export refunds and intervention buying, or more recently through stiff regulations for exporters, the EU has always protected its farmers. While most countries practise some form of farm protectionism, the EU’s stands out for its veil of ethics, environmental activism being the latest.

To ferret out the truth, one needs to look closely at the definition of “degraded forests" in the EU’s proposed law. It requires traders to state that their products were not cultivated on forests degraded after 31 December 2020. But degradation here refers to that of “primary forests" or their conversion into plantation forests. Primary forests typically occur naturally, can regenerate themselves and have remained largely undisturbed by humans, except for indigenous inhabitation. The problem is that Europe cleared most of its primary forests decades ago. They cover only 0.7% of the total forest area in Europe today, while Asia, parts of Africa and South America house huge swathes. This can be seen in a map on FAO’s geospatial data platform: of the top 15 countries importing to Europe, 10 house a medium to high proportion of primary forests. Europe did not bat an eyelid before chopping its primary forests for industrialization, but today, the EU wants to mount its environmental concerns on the burdened shoulders of developing countries.

Next, turn to the commodities listed as causing the greatest deforestation: cocoa, coffee, soya, timber, palm oil, rubber and their derivatives. A quick investigation reveals some trade patterns:

One, a chunk of these products falls under extra-EU trade, especially with Asia and Africa. Two, many of these are trade-deficit commodities for Europe, especially palm oil, coffee and protein crops like soya. Three, the production of these commodities in Europe have been rising in the last few years. For instance, soya saw a growth of 6.4% on its 2020 output. Similarly, coffee is gaining pace in Germany and Italy, among other countries.

It doesn’t take much to see that the EU is trying to protect its internal production and trade by cherry-picking these products as part of its proposed law. Not surprisingly, this has been in the making for nearly a decade. Data from Eurostat shows how the EU has steadily increased its trade surplus in agricultural products since 2011.

It wouldn’t be a stretch to argue that the political imperative to ameliorate the effects of today’s post-pandemic economic slowdown amid high inflation may have played a role in this move. After Brexit, a country with heavy import dependence like the UK is gone from the EU’s set of concerns, making it easier for Brussels to frame such a policy.

But what does this law and its extra-territorial implications mean for us ? If adopted, it will be no less than a Molotov cocktail for countries like India. Consider this. The EU is a net importer of agri-foods vis-á-vis India. The most important products exported by India include coffee, cocoa, spices, tea, rice and soya. The onerous procedures and convoluted compliances envisaged in the law will severely impact small and medium exporters of at least three of these commodities.

Further, the law proposes a benchmarking system assessing and grading countries on the basis of the deforestation risk they exhibit. Obligations for countries will then be decided on the basis of this assessment. A provision like this is nothing short of a black box that will let the EU arbitrarily categorize countries and use this categorization to restrict trade from countries seen as competition. Such a country-slotting approach by the EU would also be a blatant violation of the “national treatment" and “most favoured nation principles" that form the backbone of the multilateral trading system governed by the World Trade Organization. The EU will also most certainly fund civil society bodies to monitor and update these country labels, raising the fear that political influence may be sought through extra-juridical as well as extra-jurisdictional arm-twisting.

There is many a slip twixt the cup and the lip on this EU decision, and the brunt of it will probably be borne by countries like India, Vietnam, Malaysia, Brazil, Argentina, Ecuador, Peru, Guatemala,and Costa Rica. Thus, it is important that this decision be seen not as a one-off international occurrence, but as a decision with long-term and well thought-out ramifications for Indian trade and exports. In sum, Indian policy planners must devote adequate attention to this development. Perhaps coordinated action with other affected countries could be charted out to forestall its consequences.

Sakshi Abrol is senior researcher, Centre for Development Research, University of Bonn, Germany

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Published: 13 Dec 2022, 11:01 PM IST
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